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Inland Revenue

Tax Policy

Chapter 1 - Background


1.1 Since late 2012, there has been significant global media and political concern about evidence suggesting that some multinationals pay little or no tax anywhere in the world. This problem is referred to as base erosion and profit shifting or BEPS”.

1.2 BEPS is a global problem and many BEPS strategies exploit technical differences between different countries’ tax rules. Accordingly, New Zealand has been working with the OECD and G20 to develop a co-ordinated global solution to address BEPS through the 15-point G20/OECD BEPS Action Plan.

1.3 The Government has already implemented a number of BEPS-related policy reforms and is working on a number of others, including hybrid mismatch rules and strengthened transfer pricing and permanent establishment (PE) rules.

1.4 This issues paper seeks feedback on New Zealand’s implementation of another OECD BEPS measure – the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (referred to as the multilateral instrument or MLI). The MLI will modify a number of New Zealand’s existing double tax agreements (DTAs) in order to bring them into line with OECD recommendations.

OECD’s multilateral instrument

1.5 DTAs are bilateral agreements that aim to mitigate double tax on cross border transactions, often by requiring states to exempt income or provide tax credits. There is the potential for these bilateral agreements to be misused to reduce or eliminate a multinational’s worldwide tax. Misuse of DTAs in this way has been a feature of a number of cross-border tax avoidance arrangements.

1.6 Therefore, addressing treaty abuse has been a major part of the BEPS project and a number of the Action items in the BEPS Action Plan make recommendations that can only be implemented through changes to DTAs, including:

  • preventing the granting of treaty benefits in inappropriate circumstances (Action 6);
  • preventing the artificial avoidance of permanent establishment status (Action 7);
  • neutralising the effects of hybrid mismatch arrangements that have a treaty aspect (Action 2); and
  • providing improved mechanisms for effective dispute resolution (Action 14).

1.7 Some of these recommendations are BEPS “minimum standards” that countries that commit to solving BEPS are required to adopt. The minimum standards are the treaty abuse provisions contained in the Action 6 report and certain elements of the dispute resolution provisions contained in the Action 14 report.

1.8 All other provisions are optional, but are DTA “best practice” and now form part of the OECD Model Tax Convention following adoption of the G20/OECD Action Plan.

1.9 Countries were presented with the difficulty of how to quickly and efficiently implement these measures without requiring the bilateral renegotiation of several thousand existing DTAs.

1.10 In this respect, Action 15 of the OECD BEPS Action Plan recommended developing a multilateral instrument that would swiftly amend the DTAs of all participating jurisdictions.

1.11 The Ad-Hoc Group of officials from approximately 100 jurisdictions (both OECD and non-OECD jurisdictions) was formed to develop the text of the MLI.[1]

1.12 The OECD held public consultation on the MLI concept in Paris in July 2016. Material related to this consultation and a video recording of submissions is available on the OECD’s website at

1.13 The text of the MLI and the accompanying Explanatory Statement was published by the OECD in November 2016 at

1.14 New Zealand expects to be in a position to sign the MLI in mid-2017. Following signature, the MLI will go through the domestic process for ratification, including being submitted for parliamentary treaty examination.

Summary of issues paper

1.15 In chapter 1, this issues paper explains what the MLI is and, at a high level, how it will operate to amend our DTAs. Chapter 2 then explains how the substantive provisions will address BEPS concerns. Chapter 3 sets out the implementation process and next steps.

1.16 The MLI provides New Zealand with a unique opportunity to strengthen our DTAs and ensure they are consistent with international best practice. Accordingly, the Government has already indicated it intends to sign the MLI, and has made preliminary decisions on which DTAs to cover and provisions to adopt. Broadly speaking, New Zealand intends the MLI to cover the majority of its DTA network and to adopt all applicable minimum standard and optional provisions.

1.17 Due to the novel nature of the MLI and its interaction with New Zealand’s DTAs, officials are interested in receiving submissions on the implementation of the MLI and practical issues associated with its adoption.

How to make a submission

1.18 Officials invite submissions on the suggested changes and points raised in this issues paper. Submissions should be sent to [email protected] with “NZ’s implementation of the MLI” in the subject line.

1.19 Alternatively, submissions can be addressed to:

New Zealand’s implementation of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS
c/- Deputy Commissioner, Policy and Strategy
Inland Revenue Department
PO Box 2198
Wellington 6140

1.20 The closing date for submissions is 7 April 2017.

1.21 Submissions should include a brief summary of major points and recommendations. They should also indicate whether it would be acceptable for Inland Revenue and Treasury officials to contact those making the submission to discuss the points raised, if required.

1.22 Submissions may be the subject of a request under the Official Information Act 1982, which may result in their release. The withholding of particular submissions, or parts thereof, on the grounds of privacy, or commercial sensitivity, or for any other reason, will be determined in accordance with that Act. Those making a submission who consider that there is any part of it that should properly be withheld under the Act should clearly indicate this.


1 A list of participating jurisdictions can be found in the OECD’s Brochure on the MLI published in November 2016 at